Improving revenue and profit performance in Meituan’s recently released first-quarter results show the food delivery giant’s efforts at developing its new businesses are paying off.

The company’s core local commerce business revenue increased 27.4% in the first quarter, as its money-losing new businesses also grew by 18.5% amid narrowing operating losses


By KGI Asia

Improving revenue and profit performance in Meituan’s (3690.HK) recently released first-quarter results show the food delivery giant’s efforts at developing its new businesses are paying off.

According to the report, the company’s first-quarter revenue grew 25% year-on-year to 73.3 billion yuan ($10.1 billion), thanks to a 28.1% increase in its volume of on-demand delivery transactions, which reached 5.46 billion during the period. Its core local commerce business revenue increased 27.4% to 54.6 billion yuan, with an operating profit of 9.7 billion yuan, up 2.7% year-on-year. Revenue from the company’s new initiatives, which have been losing money, also grew 18.5% to 18.7 billion yuan, mainly due to growth for its goods retailing businesses.

Driven by the significant revenue increase, the company’s non-IFRS adjusted net profit rose 36.4% to 7.49 billion yuan during the period, beating market expectations for a 5.78 billion yuan profit.

Management delivers on promises

Investors were most excited by the better-than-expected performance of Meituan’s new initiatives. Despite logging a 2.8 billion yuan operating loss, the figure was the lowest since the third quarter of 2020. It was down 45.2% year-on-year and was smaller than the 3.23 billion yuan loss the market was expecting. Its operating margin narrowed from negative 32% in the first quarter of last year to negative 14.8% this year. Management made good on its promise, contained in last year’s annual performance report, to significantly narrow operating losses in 2023.

In his outlook for the second quarter, CEO Wang Xing stressed that the company’s real-time delivery service business continued to post healthy growth in the first quarter on macroeconomic improvements, while also benefitting from a low base in the same quarter last year. He said the growth is expected to moderate to more normal levels in the second quarter, which is consistent with the broader current consumption environment.

To sustain high-quality growth for its food delivery business, the company intends to pursue a more granular operational approach based on diverse consumption scenarios, with an aim of increasing transaction frequency of high-volume users. The company will also continue to raise prices of some goods and close underperforming warehouses to improve operating efficiency. Hopefully, these measures can help to improve its financial performance. The company will regularly track the effects of these measures.

At the same time, Meituan has stepped up marketing efforts to help its vendors attract users. Vendors themselves have also shown more appetite for advertising, which will improve their monetization efforts. According to management, consumer travel demand remains strong, with people preferring packages as market competition settles down. Meituan’s community-based e-commerce business, Meituan Select, is expected to further narrow its operating losses to 2.1 billion yuan in the second quarter, helping management to continue delivering on its promises.

Thus, our analyst remains positive on Meituan’s outlook for the second quarter, with a target price of HK$128 – representing around 10% upside to the current price. The stop-loss price is HK$102.

This commentary is the views of the writer and does not necessarily reflect the views of Bamboo Works

To subscribe to Bamboo Works free weekly newsletter, click here

Recent Articles

Founded in 2008, RemeGen develops and sells novel drugs in the areas of autoimmunity, oncology, ophthalmology and other major diseases.

FAST NEWS: RemeGen scales back A-share fundraising plan

The Latest: Novel drug maker RemeGen Co. Ltd. (9995.HK; 688331.SH) announced Wednesday that it has reduced its fundraising target through a planned issue of new A-shares from a previous 2.55 billion yuan ($350…